Given the sweeping uncertainty created by COVID-19, the name of the game these days on Wall Street is risk management. For now, LPL seems to be the most risk averse stock among the three wealth managers mentioned, yet its stock price performance year to date has not reflected that relatively favorable positioning.
Wealth management stocks have gotten hammered so far in 2020, but one analyst said on Monday that all wealth managers are not created equal.
Wells Fargo analyst Christopher Harris issued the following three ratings changes for wealth management stocks:
- Stifel Financial Corp (NYSE: SF) downgraded from Market Weight to Underweight, price target cut from $43 to $40.
- Raymond James Financial, Inc. (NYSE: RJF) downgraded from Market Weight to Underweight, price target cut from $64 to $61.
- LPL Financial Holdings Inc (NASDAQ: LPLA) upgraded from Market Weight to Overweight, price target raised from $63 to $70.
Harris said the three stocks mentioned have all taken similar hits so far in 2020 despite the fact that the three businesses have dissimilar risk profiles. He said Raymond James and Stifel both face near-term quedit quality issues that skew risk to the downside, while LPL Financial does not.
“Low interest rates are a significant headwind for LPLA, but we believe the market is underappreciating the offsetting upside potential from organic growth,” Harris wrote in a note.
While Raymond James and Stifel face lower loss rates than the banking industry, Harris said consensus 2021 EPS estimates are too optimistic. At the same time, LPL's organic revenue growth rate has been accelerating, and COVID-19 could actually help with that trend if LPL gains advisors from over-leveraged peers.
Given LPL does not operate a bank subsidiary, it is not facing the possibility of loan write-offs.
Harris said Raymond James has one of the best management teams in the financial services group. In addition, he has a favorable long-term view on the company’s focus on private clients. However, he said the one-two-punch of lower interest rates and potential loan losses simply create too much risk to recommend the stock right now.
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